Many young (and not so young) New Zealanders travel and work overseas. Those who do need to understand the income tax implications.
Here’s a conversation I had in my office recently.
Me: I see you were In Australia for about six months last year.
Me: Do you know about the tax situation when you work overseas? In New Zealand you’re taxed on your worldwide income, and your Australian income is part of that.
Client: But I paid tax in Australia – they take off a lot of tax if you’re a casual.
Me: But you can apply to the ATO for a refund. You get some of it back.
Client: I know, I did apply for a refund, and got most of it back actually.
Me: OK we need to include your Australian income in your New Zealand income tax return. You can claim a credit for the tax you’ve paid in Australia – but only the net tax after getting back the refund.
Client: I wasn’t expecting that.
Money you earn overseas is taxable in New Zealand unless you leave for long enough and in the right circumstances to become a non-resident. But if you go overseas, and retain your New Zealand links with the intention of returning, you will not be a “non-resident”.
My client, a contractor when he’s in New Zealand, doesn’t earn a big income, but this is the very situation when the cross-Tasman difference hits you the most.
This is because in Australia the first $18,000 you earn is tax-free. In New Zealand the same income is taxed at 10.5 cents or 17.5 cents in the dollar.
My client had earned about $20,000 in Australia and had paid very little tax there (that is after allowing for the refund). So he had only a very small credit to claim against his New Zealand tax.
His marginal tax rate in New Zealand was 17.5 cents, so the New Zealand tax on the Australian income was about $3,500 less the small amount of tax he paid in Australia.
I said earlier you are not taxed in New Zealand if you become a non-resident. But if you have retained a home in New Zealand while you’ve been away, or have other strong ties, you won’t qualify under Inland Revenue’s very strict rules.
Far North Tax Professionals